Question

# Inferring Transactions from Financial Statements Lowe's is the second-largest home improvement retailer in the world, with...

Inferring Transactions from Financial Statements
Lowe's is the second-largest home improvement retailer in the world, with 1,857 stores. During its 2015 fiscal year ended in January 2016, Lowe's purchased merchandise inventory at a cost of \$39,051 (\$ millions). Assume all purchases were made on account and accounts payable is only used for inventory purchases. The following T-accounts reflect information contained in the company's 2014 and 2015 balance sheets.

Merchandise Inventories
2014 Bal. 8,911
2015 Bal. 9,458
Accounts Payable
5,124 2014 Bal.
5,633 2015 Bal.

a. Use the financial statement effects template to record Lowe's purchases during fiscal 2015. Use a negative sign with answers, if appropriate.

Balance Sheet Income Statement
Transaction Cash Asset + Noncash
Assets
= Liabilities + Contrib.
Capital
+ Earned
Capital
Revenues - Expenses = Net income

b. What amount did Lowe's pay in cash to its suppliers during fiscal-year 2015?

c. Use the financial statement effects template to record cost of sales for 2015. Use a negative sign with answers if appropriate.

a)

Balance Sheet Income Statement
Transaction Cash Asset + Noncash
Assets
= Liabilities + Contrib.
Capital
+ Earned
Capital
Revenues - Expenses = Net income
Purchase of inventory on account 39,051 39,051

b)

Cash paid to suppliers = Accounts payable, beginning + Purchases - Accounts payable, ending

= 5,124 + 39,051 - 5,633

= \$38,542 millions

c)

Cost of sales = Cash payment to suppliers -  Increase in inventory + Increase in accounts payable

= 38,542 - (9,458 - 8,911) + (5,633 - 5,124)

= 38,542 - 547 + 509

= \$38,504

Balance Sheet Income Statement
Transaction Cash Asset + Noncash
Assets
= Liabilities + Contrib.
Capital
+ Earned
Capital
Revenues - Expenses = Net income
Cost of sales - 38,504 38,504